A company issues new stock to retire existing bonds. How does this affect its Debt-to-Equity ratio?

💡 Explanation:

The Debt-to-Equity (D/E) ratio is calculated as Total Liabilities / Shareholders' Equity. When a company issues new stock (Equity uparrow), the denominator increases, and when it uses the proceeds to retire existing bonds (Liabilities downarrow), the numerator decreases. Both actions cause the ratio to fall. A lower D/E ratio indicates reduced financial leverage and typically lower financial risk.